Wednesday,

April 13, 2005

Part IV

Department of
Housing and Urban
Development
24 CFR Part 200
Revised Guidelines for Previous
Participation Certification; Final Rule

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 19660 Federal Register / Vol. 70, No. 70 / Wednesday, April 13, 2005 / Rules and Regulations
DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
24 CFR Part 200
[Docket No. FR–4870–F–02]
RIN 2502–AI10
Revised Guidelines for Previous
Participation Certification
AGENCY: Office of the Assistant
Secretary for Housing—Federal Housing
Commissioner, HUD.
ACTION: Final rule.
SUMMARY: This final rule revises the
regulations to require all participants in
HUD’s Multifamily Housing Programs to
file their Previous Participation
Certificates by a specified date using the
Active Partner Performance System on
HUD’s secure Internet site. This rule
follows publication of a proposed rule
and takes into consideration the public
comments received on the proposed
rule. This rule makes no substantive
change to the proposed rule, but
provides for a six-month delay in the
effective date of the electronic
submission requirement.
DATES: Effective Date: May 13, 2005.
FOR FURTHER INFORMATION CONTACT:
James E. Collins, Management Analyst,
Housing Policy and Participation
Standards Division, Office of the Deputy
Assistant Secretary for Multifamily
Housing, Room 6180, Department of
Housing and Urban Development, 451
Seventh Street, SW., Washington, DC
20410–8000; telephone 202–708–1320,
extension 3279 (this is not a toll-free
number). Hearing- and speech-impaired
persons may access this number through
TTY by calling the toll-free Federal
Information Relay Service at 800–877–
8339.
SUPPLEMENTARY INFORMATION:
I. Background
The purpose of the Previous
Participation Certification process is to
ensure that prospective participants in
HUD’s Multifamily Housing Programs
have a history of carrying out their past
financial, legal, and administrative
obligations in a satisfactory and timely
manner. The current system requires
HUD’s business partners that want to
participate in multifamily housing
programs to file a paper Previous
Participation Certificate using form
HUD–2530 together with a description
of all previous participation in
multifamily programs every time they
wish to do business with HUD.
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II. The April 19, 2004, Proposed Rule
On April 19, 2004 (69 FR 21036),
HUD published a proposed rule that
advised of HUD’s intention to amend 24
CFR 200.217(a) to require that filing, by
a specific date, of the Previous
Participation Certificate by participants
in HUD’s Multifamily Housing programs
be done electronically rather than by
completing a paper form (form HUD–
2530). In the proposed rule, HUD
advised that the electronic filing would
be accomplished by using a secure
Internet-based application developed by
HUD known as the Active Partner
Performance System (APPS). The
proposed rule also clarified the types of
transactions for which a principal or
participant in HUD multifamily
mortgage insurance and project-based
subsidy programs must complete an
electronic Previous Participation
Certificate.
The proposed rule stated that APPS
will provide participants with a secure
environment within the HUD firewall
where participants will record pertinent
information about their specific
relationship to any property. Using the
APPS application, participants will be
able to ensure that their individual
records are complete, correct, and
accurate at all times. APPS will provide
participants with information about the
physical condition of properties with
which they are associated and will
highlight any problems that may exist.
Further, APPS will assist HUD in
monitoring participants. APPS will
allow HUD to maintain a history of
participants, their various roles in
property operations, and properties with
which they are or were involved. A
clear benefit of using APPS is that risk
assessment of a party’s new or revised
participation will occur faster, as paper
is not required to be sent back and forth
across the country. Risk information
will be shared automatically with
participants, which will make the issues
resolution process more efficient.
III. This Final Rule
This final rule implements the
proposed rule without substantive
change, except that HUD has adopted
the suggestion that there be a six-month
transition period. Hence, while the rule
as a whole is effective 30 days from the
date of publication, the effective date of
the provision requiring electronic
submission of the Previous Participation
Certificate is 180 days from the date of
publication in the Federal Register.
Prior to that date, participants are
required to continue to file form HUD–
2530 as a condition prerequisite to new
or revised participation.
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IV. Discussion of Public Comments
The public comment period for the
proposed rule closed on May 19, 2004.
HUD received seven comments in
response to the rule: One from a local
residential services association; three
from national associations representing
management groups and builders; one
from a government sponsored
enterprise; one from a mortgage group;
and one from a national law firm. Each
of the seven commenters expressed their
general support for HUD’s effort to
require electronic filing of multifamily
Previous Participation Certificates. One
commenter supported ‘‘any procedural
changes that reduce the paperwork
burden.’’ One commenter agreed that
‘‘there are clear benefits to an electronic
submission, including faster reviews by
HUD staff, which is critical to the timely
approval of FHA mortgage insurance for
new projects.’’
The following presents the significant
issues raised by the commenters and
HUD’s response to the comments.
Comment: Alternate Form for
Submission: One comment noted a
desire to see a provision in the rule for
transmission of participation data in a
form other than through APPS: ‘‘HUD
electronic systems are often less than
user friendly. If HUD–2530s could be
sent via the Internet to local offices, the
process would be faster and less
cumbersome.’’
HUD Response: At this time HUD
does not plan to provide such
alternatives. HUD has explored other
forms of submission, but has so far
found none as effective as APPS. HUD
has continued to develop some
alternatives within the system to ease
the burden of initial inputs of
organization and participant data. For
example, HUD now makes data
regarding the participant’s portfolio
available on-line and has adjusted the
system to remove some redundant and
repetitive steps. The Department
continues to work to make the system
efficient and easy to use. HUD believes,
based on its experience, that the
solution that the commenter suggests
would actually decrease the system’s
efficiency.
Comment: Effective Date and
Transition Period: Three commenters
stated their concern of being required to
use the electronic system immediately,
beginning 30 days following the date the
final rule is published in the Federal
Register. One comment requested an
effective date of at least six months
because ‘‘[t]he effective date of this rule
should recognize that experience with
[APPS] varies across the affordable
housing industry.’’ Two commenters
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suggested a transition period during
which the applicants could submit
certifications on paper while any
difficulties or technical issues with the
system are being resolved. One
commenter also suggested that ‘‘HUD
must allow itself sufficient time to make
this requirement practical,’’ and two
commenters noted that training on the
electronic system should be widely
available prior to the effective date.
HUD Response: HUD plans a
transition period of six months from the
effective date of this final rule. This will
allow time for registration and entry of
data by participants and for participants
to become familiar with the processes.
The APPS process requires the entry of
baseline data about individuals and
companies, collectively known as
participants. It is similar in nature to the
paper process where the parties listed
on the paper form HUD–2530 listed
names, addresses, employer
identification, taxpayer identification,
and other data. After the baseline is
entered, the participant is responsible to
keep the data updated at all times. The
second and final step is to link
individual property experience to the
participant. All work is on-line through
HUD’s secure servers. During the
transition period, participants will be
required to file paper form HUD–2530
Previous Participation Certifications for
all new business. On and after the
effective date, paper forms will not be
accepted.
In order to facilitate the transition,
HUD is providing informational
materials, including the APPS user
guide, on HUD’s Web site at http://
www.hud.gov/offices/hsg/mfh/apps/
appsmfhm.cfm. The APPS online
application itself has on-line help
functions to assist while the participant
is entering data.
Comment: Information Collection:
Three commenters discussed the issue
of information collection generally. One
commenter ‘‘urge[d] HUD to carefully
review all information requested under
the new submission procedure to ensure
that it is consistent with current 2530
regulations.’’ Another commenter noted
‘‘[t]he computerized system should
clearly allow for similar entries to the
system as currently structured, and not
increase the scope of entities subject to
submission.’’ The commenters also
suggested that HUD use the new
electronic system to communicate to
users, for example, any changes that
affect the system should be promptly
posted. Two commenters suggested
specifically for HUD to be able to notify
participants when flags are placed and/
or resolved to their account.
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HUD Response: HUD does not believe
that the requirements of this final rule
seek information beyond the scope of
what is required now. The APPS will
reduce the burden on the public through
on-line storage of all required data,
which will be secure, accessible, and
able to be updated by the participant.
On the point raised about electronic
communication, HUD agrees that digital
communications to participants about
APPS-related events would be
beneficial. HUD is considering this
functionality for the future. Presently,
HUD communicates with participants
using various methods. Inspection
report information is presently sent to
participants by e-mail.
Comment: Definition of ‘‘Participant’’:
Three commenters expressed their
concern over the lack of a definition for
‘‘participant.’’ One commenter noted
that ‘‘ ‘principal’ is defined under 24
CFR 200.215, but ‘participant’ is not,
and there is no definition for that term
in the Proposed Rule.’’ One commenter
stated they were advised that the ‘‘three-
tier rule in the 2530 handbook would be
effectively eliminated and thus
numerous additional (undefined)
‘participants’ would be required to file
certifications.’’ Because ‘‘principal’’ and
‘‘participant’’ are important terms, the
commenters suggested that they should
be clearly defined in the regulations.
HUD Response: ‘‘Participant’’ is the
term that refers generically to all
principals, affiliates, etc. referred to in
existing regulations. So as not to
confuse users, HUD has replaced
references to ‘‘participant’’ with
‘‘principal.’’
As to the so-called ‘‘three-tier rule,’’
that ‘‘rule’’ is not based on a regulation
promulgated after notice-and-comment
rulemaking, but rather is a procedural
guideline. A careful reading of HUD’s
codified regulations does not include
any limitation on organizational levels
that must file certifications. HUD
Handbook 4065.1 will be updated to
reflect this regulation and more current
policy.
Comment: Program References: Two
commenters noted that the proposed
rule appears to reference HUD programs
which no longer exist and fails to
reference current HUD program
activities. One commenter suggested
that HUD should ‘‘delete or revise 24
C.F.R. Section 200.213.’’
HUD Response: This change would be
beyond the scope of the current
rulemaking. HUD plans to update this
section in the future.
Comment: Limited Liability
Companies (LLCs) and Limited
Partnerships (LPs): Two commenters
stated that it is unclear whether the
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19661
proposed rule would apply to LLCs and
LPs equally or whether different
standards would apply. Both
commenters suggested that the final rule
should clarify that equal requirements
apply to both LLCs and LPs. Moreover,
one commenter maintained that
‘‘passive investors,’’ such as Limited
Partners, should not be made to track
some of the information required in the
HUD–2530 because they are not actively
involved in the management of the
property.
HUD Response: HUD is considering
changes to 24 CFR, Subpart H that will
clarify treatment of ‘‘passive investors’’
and recently created business entity
types. Under existing regulations at 24
CFR part 200.215, other public and
private entities proposing to participate
in HUD programs are covered.
Therefore, even where not specifically
mentioned, LLCs and LPs are covered.
At the present time, the Department
has chosen to treat LLCs as if they were
partnerships. The Managing Member
will be considered a general partner and
the members limited partners for
participation clearance purposes.
Comment: Interest Reduction
Payment Contract: One commenter
requested clarification as to whether the
HUD–2530 would have to be filed by
the owner of the property or the lender,
in connection with the assumption of an
Interest Reduction Contract. The
commenter suggested that only the
owner should be required to file the
HUD–2530.
HUD Response: The previous
participation process requires a HUD–
2530, Previous Participation
Certification, to be submitted when
there is new or significantly expanded
participation. To determine whether a
submission or application is required,
Field Offices have been advised to
require a Previous Participation
Certification when there is any apparent
change in control, including
introduction of new entities. Each case
must be evaluated on its own terms as
to whether it requires a new filing.
Comment: 30-Day Advance Filing:
One commenter stated that the existing
rule requires only that a HUD–2530 be
filed prior to the date of the proposed
transaction, whereas the proposed rule
requires that the HUD–2530 be filed a
least 30 days prior to the transaction.
The commenter requested clarification
on this apparent discrepancy.
HUD Response: HUD is making this
change because recent experience has
shown that in order to prevent delays
from occurring in business transactions,
HUD needs this material to be filed
earlier than previously.
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Comment: Disclosure of Principals:
One commenter noted that ‘‘the
proposed rule places no limitation or
qualification for disclosure and places
companies at risk of violating a rule
unless they spend significant time
documenting information clearly
relevant to a transaction.’’ The
commenter suggested that the disclosure
of up to ‘‘three tiers’’ in the
organizational structure, per guidance
contained in HUD Handbook 4065.1, be
required. Additionally, the commenter
suggested that disclosure of principals
in large public entities should be
limited to ‘‘affiliates, persons or
divisions with operational control over
the property at issue.’’
HUD Response: As stated earlier, the
so-called ‘‘three-tier rule’’ is derived
from Handbook policy and is not a rule
promulgated under the Administrative
Procedure Act. A careful reading of the
regulations does not include any
limitation on organizational levels. HUD
Handbook 4065.1 will be updated to
reflect this regulation and current
policy. HUD Handbook 4065.1 allows
the Department to limit disclosure of the
principals in large public entities. HUD
may clarify this distinction in future
rule changes.
Comment: Definition of Interest: One
commenter noted that the proposed rule
does not contain a definition of interest.
The commenter stated ‘‘[t]he previous
participation procedures require
submission for all limited partners with
more than 25% interest and
stockholders with more than 10%
interest in the property. However, there
is no definition of what constitutes an
interest.’’
HUD Response: The definition of
‘‘interest’’ in this regulation is the
ordinary legal definition: ‘‘A legal share
in something; all or part of a legal or
equitable claim to or right in property’’
(Black’s Law Dictionary 828 (8th ed.
2004)). Because the commonly-
understood definition of ‘‘interest’’ is
being used, it is not necessary to
specifically define the term in this rule.
Comment: Migration of Data: One
commenter stated that APPS should
allow the migration of data from other
commonly-used databases.
HUD Response: HUD does not plan to
provide this functionality at this time
due to budgetary constraints.
Comment: Task Force: One
commenter states that a task force
review should be completed prior to
requiring the use of a computerized
system, and that such a delay would
provide for a transitional period.
HUD Response: HUD has considered
this comment, and believes that it is
appropriate at this time to go forward
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with the transition to electronic filing.
HUD has built a six-month transition
period into the rule, making any further
delay unnecessary.
V. Findings and Certifications
Paperwork Reduction Act
The information collection
requirements contained in § 200.217
have been approved by the Office of
Management and Budget (OMB) in
accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501–
3520) and assigned OMB control
number 2502–0118. An agency may not
conduct or sponsor, and a person is not
required to respond to, a collection of
information unless the collection
displays a valid control number.
Environmental Impact
A Finding of No Significant Impact
with respect to the environment was
made in accordance with HUD
regulations at 24 CFR part 50, which
implement section 102(2)(C) of the
National Environmental Policy Act of
1969 (42 U.S.C. 4332(2)(C)). The
Finding of No Significant Impact
remains applicable to this final rule and
is available for public inspection
between the hours of 8 a.m. and 5 p.m.
weekdays in the Regulations Division,
Office of General Counsel, Room 10276,
Department of Housing and Urban
Development, 451 Seventh Street, SW.,
Washington, DC 20410–0500.
Unfunded Mandates Reform Act
The Unfunded Mandates Reform Act
of 1995 (2 U.S.C. 1531–1538) establishes
requirements for federal agencies to
assess the effects of their regulatory
actions on state, local, and tribal
governments and on the private sector.
This rule does not impose a federal
mandate on any state, local, or tribal
government, or on the private sector,
within the meaning of the Unfunded
Mandates Reform Act of 1995.
Impact on Small Entities
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.), generally requires an
agency to conduct a regulatory
flexibility analysis of any rule subject to
notice and comment rulemaking
requirements unless the agency certifies
that the rule will not have a significant
economic impact on a substantial
number of small entities. This rule does
not change informational obligations for
entities, but simply provides for
electronic filing of the same information
that is currently required.
Therefore, the undersigned certifies
that this proposed rule will not have a
significant economic impact on a
substantial number of small entities,
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and an initial regulatory flexibility
analysis is not required.
Executive Order 13132, Federalism
Executive Order 13132 (entitled
‘‘Federalism’’) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial direct compliance costs on
state and local governments and is not
required by statute, or the rule preempts
state law, unless the agency meets the
consultation and funding requirements
of section 6 of the Executive Order. This
rule does not have federalism
implications and does not impose
substantial direct compliance costs on
state and local governments nor
preempt state law within the meaning of
the Executive Order.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic
Assistance number is 14.117.
List of Subjects in 24 CFR Part 200
Administrative practice and
procedure, Claims, Equal employment
opportunity, Fair housing, Housing
standards, Lead poisoning, Loan
programs-housing and community
development, Mortgage insurance,
Organization and functions
(Government agencies), Penalties,
Reporting and recordkeeping
requirements, Social security,
Unemployment compensation, Wages.
■ Accordingly, for the reasons described
in the preamble, HUD amends 24 CFR
part 200 as follows:
PART 200—INTRODUCTION TO FHA
PROGRAMS
■ 1. The authority citation for part 200
continues to read as follows:
Authority: 12 U.S.C. 1702–1715z–21; 42
U.S.C. 3535(d).
■ 2. Amend § 200.217 by revising
paragraph (a) to read as follows:
§ 200.217 Filing of previous participation
certificate on prescribed form.
(a) Effective October 11, 2005, or on
such later date as may be allowed by
HUD, all principals in HUD multifamily
mortgage and project based subsidy
programs must submit an electronic
Previous Participation Certificate (form
HUD–2530) via HUD’s secure web
server as a condition prerequisite to new
or revised participation. Prior to this
date, principals are required to file form
HUD–2530 as a condition prerequisite
to new or revised participation. Filing
requirements are as prescribed by the
Assistant Secretary for Housing-Federal
Housing Commissioner at the
occurrence of any of the events below:
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(1) With an Application for a Site
Appraisal/Market Analysis Letter,
Feasibility Letter, Conditional
Commitment for Mortgage Insurance, or
Firm Commitment for Mortgage
Insurance, whichever application is first
filed, for projects to be financed or
refinanced with mortgages insured
under the National Housing Act;
(2) With an Application for a Fund
Reservation for projects financed or to
be financed with direct loans or capital
advances under section 202 of the
Housing Act of 1959 (Housing for the
Elderly and Handicapped);
(3) With an Application for a Fund
Reservation for projects financed or to
be financed with direct loans or capital
advances under Section 811 of the
Cranston-Gonzales National Affordable
Housing Act (Supportive Housing for
Persons with Disabilities);
(4) With the first request for a
reservation of funds for assistance
payments for projects in which 20
percent or more of the units are to
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receive a subsidy described in
§ 200.213(c);
(5) With an Application for any
Transfer of Physical Assets;
(6) With a request to assume any
existing Housing Assistance Payments
Contract, Interest Reduction Contract,
Rent Supplement Contract, or Rental
Assistance Payments Contract;
(7) With a request to change
ownership of a property regulated or
controlled by a HUD ‘‘use agreement’’;
(8) With an application or request to
change the approved lessee operating a
nursing home, assisted living, or skilled
care facility;
(9) With a bid to purchase a project
being sold at foreclosure by HUD or by
a foreclosure commissioner acting for
HUD, when the terms of the sale permit
HUD to disapprove a bidder;
(10) With a bid to purchase a
Secretary-owned project;
(11) With a bid to purchase a
mortgage note held by the
Commissioner;
(12) At least 30 days prior to the date
of any proposed substitution or addition
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19663
of a new principal in an existing project,
such as management agents, LLC
members, directors, or partners, or
proposed participation in a different
capacity from that previously approved
for the same project;
(13) At least 30 days prior to the
proposed acquisition by an existing
limited partner, stockholder, or any
principal of additional interests
resulting in a total interest of at least 25
percent (partners) or 10 percent (non-
partners); or
(14) Certificates of participation must
be submitted for interests acquired by
any party or organization by inheritance
or court decree within 30 days after said
acquisition or decree, but will not be
subject to review or disapproval.
* * * * *
Dated: April 4, 2005.
John C. Weicher,
Assistant Secretary for Housing-Federal
Housing Commissioner.
[FR Doc. 05–7351 Filed 4–12–05; 8:45 am]
BILLING CODE 4210–27–P
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